YouTube Wasn't too Legit for Google to Get

October 13, 2006

A matter of hours after YouTube heralded deals with three heavyweight content providers, the folks at Google agreed to plunk down $1.65 billion in stock for the online community video site. YouTube had just struck deals with Sony BMG, Universal and CBS to provide free content when the search engine giant sucked up YouTube.

The deal between Google, which generated $6.1 billion in revenue last year, and the Internet equivalent of a year-old garage band, reverberated across cyberspace. The deal was covered by such diverse oulets as Scientific American, The Christian Science Monitor, and the Blog Maverick, a veteran 'Net entrepreneur otherwise known as Mark Cuban.

"It will be interesting to see what happens next and what happens in the copyright world," Cuban wrote on Oct. 9, the day the deal was announced. He'd hammered on YouTube in previous blogs for how the site allowed users to post copyrighted material.

He said lawsuits would hit the fan in the event of a Google acquisition, but he later amended that prediction, saying that smaller YouTube imitators would be targeted first, to set a legal precedent clarifying the safe harbor clause of the Digital Millennium Copyright Act. The clause infers that individual posters are responsible for their material, while the host site is held harmless as long as they remove content upon request.

Cuban writes that if copyright holders "can win some judgments saying these little sites are not protected by Safe Harbor rules, then they have all the leverage in the world to dictate licensing terms to sites that until now have not proactively enforced copyright, but have instead chosen to rely on rights holders takedown notices."

Wall Street appeared nonplussed by the threat of a copyright battle. Google stock gained slightly the day of the acquisition, then remained in the $425 to $430 range for the rest of the week, even as big guns emerged from the woodwork. Time Warner chief Dick Parsons reportedly told The Guardian that copyright negotiations with YouTube would be "kicked up to the Google level in the hope that we can get to some acceptable position."

Started in February '05 with venture cap funding by two 20-somethings, YouTube went live about a year ago and quickly became the world's largest video-sharing site. YouTube reports that it gets about 70 million views daily. Web traffic monitor Hitwise reports that YouTube gets 43 percent of video-sharing traffic; MySpace is second with 24 percent; and Google ranks around No. 5 with a shade more than 6 percent (from figures published in May).

Google went after YouTube to propel its video traffic position, and YouTube accepted because Google promised it some degree of autonomy. Google, based in Mountain View, Calif., said that YouTube, 27 miles up Highway 101 in San Bruno, would retain its "distinct brand identity." YouTube also gets the power of a multibillion dollar ad powerhouse behind it.

Chad Hurley and Steve Chen, cofounders of YouTube, posed their own video announcing the acquisition and thanking users.

"Thanks to everyone of you guys that have been contributing to the YouTube community," said Chen. "We wouldn't be anywhere close to where we are without the help of this community."

"We're gonna stay committed to developing the best service for you... the most innovative service and tools and technology so you can keep having fun on our site," Hurley said.

As typical of YouTube, the 6,847 responding comments are all over the board, but Pookieftw's post reflects a basic concern among YouTube users: "Please don't let the community be destroyed!"

The number of Google shares to be issued in the transaction will be determined based on the 30-day average closing price two trading days before the completion of the acquisition. Both companies have approved the transaction, which is subject to customary closing conditions and is expected to close in Q4 of this year.